Minister for the Cabinet Office Francis Maude has confirmed that as the Superannuation Act 2010, which supports reform of the CSCS, has now received Royal Assent, the government intends to ensure that the caps on the value of redundancy payments contained in the Act do not apply to the new compensation terms available to civil servants.

As Francis Maude pledged from the beginning of the reform process, the intention has always been that these caps would be replaced with the terms set out in the new proposed scheme, which was drafted based on proposals put forward by 5 of the 6 civil service union negotiators (FDA, Prospect, POA, GMB, Unite).

This new proposed scheme gives extra protection to the lower paid, while limiting payments for higher earners. The key facts of the new proposed scheme are:

Voluntary redundancy

below normal pension age – 1 month’s pay per year of service up to 21 months

above normal pension age – 1 month’s pay per year of service up to a maximum of 6 months

staff who have reached minimum pension age (either aged 50 or 55) can choose to opt for early retirement on their current pension entitlement (staff will be asked to surrender some (or all) of their severance payment to meet the cost of receiving this pension early)

Pay thresholds

staff earning less than £23,000 (on FTE basis) will be treated as if they earn £23,000 for the purpose of calculating their redundancy payments

there will also be an upper pay threshold of £149,820: staff will have their salary capped at this figure for the purpose of calculating their redundancy payments

Compulsory redundancy

1 month’s pay per year of service up to 12 months; all staff who may face compulsory redundancy will first have had the opportunity to exit under voluntary terms

Francis Maude said:

A significant milestone in this reform process has now been reached. From the very beginning, we have made it clear that our aim was to reach a negotiated settlement that would be affordable for the long term, address the inequities in the current system and protect those who need the most support.

I believe that the terms set out in the proposed new scheme do exactly this. They offer extra protection to the most vulnerable - those civil servants who earn the least and those closest to retirement. Now that the Superannuation Bill has achieved Royal Assent, I can confirm that we intend to repeal the caps so that they do not apply to the new scheme that is to be laid before Parliament. I hope that the terms of this new scheme can be in place as early as next week.

This will mean that a scheme which was unaffordable, way out of line with private sector and many public sector schemes - and one which too often penalised the low paid and those who hadn’t been in their posts long - could finally be replaced with one which is fair for civil servants and other taxpayers.

The Civil Service unions are currently balloting their members to see if they are willing to accept this scheme. Results of the FDA and Prospect ballots reflect overwhelming support for the union executives’ recommendation to support the new scheme. The government awaits the result of the GMB and Unite ballot, but so far there have been no indication of problems. The PCS and POA ballots are due to close in January.

Notes to editors

The Superannuation Bill received Royal Assent on 16 December 2010. Following this, the Superannuation Act 2010 (Repeal of Limits on Compensation) Order 2010 was made by the Minister for the Cabinet Office and sent for registration. It will be laid before Parliament at the beginning of next week, ahead of the new scheme.

The Civil Service Compensation Scheme sets out the level of compensation that government departments can pay their staff if they are made redundant, whether on a voluntary or compulsory basis.

Following commitments made in the Coalition agreement, in July this year the government introduced the Superannuation Bill to Parliament to support reform of the compensation scheme. At the same time it opened negotiations with the Civil Service unions on a proposed new scheme.

The Superannuation Act 2010 was intended to be an initial step to limit the costs incurred under this scheme - providing the Government with the opportunity to consult on a long-term comprehensive package of reform. It also removed the ability of any union to veto changes to the scheme, and so helped break the deadlock.

The proposed new scheme, which the government hopes will be in place before Christmas, has been drafted on based on proposals put forward by 5 of the 6 civil service union negotiators (FDA, Prospect, POA, GMB, Unite).